04 Mar , 2021 By : kanchan Joshi
Shares of Gujarat State Petronet Corporation Ltd (GSPL) climbed over 4% on Thursday, extending gains to the third session. The stock was trading near 52-week highs on Wednesday and has rallied about 85% since March 2020 lows.
The company, with a presence across the oil & gas value chain predominantly, also has interests in the regasification of LNG (Liquified Natural Gas) transmission and distribution of gas. GSPL is also the parent company of city gas distributor, Gujarat Gas Limited. With strong demand for gas , the company’s outlook remains firm.
GSPL's earnings before interest, tax, depreciation and amortisation (Ebitda) grew 11% year-on-year over the last 5 years, say analysts. This has been despite the low average implied tariff of ?1,215 during the period versus ?1,240, reported in 3QFY21.
The volume growth has remained strong (up about 10% y-o-y) during the past five years and analysts anticipated a similar growth rate over the next five years too. Available LNG regasification capacity is expected to jump 55% to 42.5mmtpa (from currently around27.5mmtpa) over the next 3-4 years in Gujarat say analysts at Motilal Oswal Financial Services Ltd (MOFL).
As growth is expected to remain strong providing impetus to earnings, the analyst see better cash flows leading to debt reduction. This is to accrue further benefits. Not only lower interest costs will mean higher net profits, the company may also reward shareholders with higher dividend. Notably, the government of Gujarat is the key promoter of the company.
Reducing debt is a key stock driver now, feel analysts. Having net debt of ?1140 crore, the management targets GSPL to become debt free in the next 3-4 quarters say analysts at MOFL. The high debt has remained concern for investors over the past few years and reducing debt removes key concern. The company could reward shareholders by increasing its dividend pay-out from 12-13% at present, say analysts at MOFL, who also highlight that the company has an interest cost of ?100 crore – similar to dividend payments.
Meanwhile, Gujarat Gas is seeing an improving outlook led by surging industrial demand and also other segments as Compressed Natural Gas (CNG) and Piped Natural Gas(PNG). The gains seen by Gujarat Gas should reflect on GSPL stock prices too.
At a 25% holding company discount, the 54% stake in Gujarat Gas provides a valuation of Rs275/share to GSPL feel analysts.
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